Infinitely, Suitably Scaled

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You can all imagine how relieved I was when I saw that the Federal Reserve got its AIG loan repaid this week. Clearly for all those institutional financiers and oligarch wealthy victims of speculative investments – like credit default swaps – this represents the long awaited closure on part one of the unspeakable angst they must have felt knowing that their recklessness was less guaranteed as long at the Fed was short on cash. I’m sure I speak for us all when I breathe a collective sigh of relief that the “system” has been recharged to once again be ready to step into the all important role of making sure that reckless speculation undermining the fabric of our economy can be reanimated. And, I’m thrilled to see that the Fed repayment was applauded by the market with its heart-felt vote of confidence which was expressed as the destruction of 12% of the value of the taxpayer’s stock! Looks like the people who should win came out on top and the public has the opportunity to be grateful that very smart people are looking out for their best interests!

Oh, and I forgot to mention one of those teensy-weensy details that will make you all puzzle a bit (until you just get tired of puzzling) – Maiden Lane II and III loans from the Fed – the “investment” vehicles that were created to hold toxic assets – have NOT been repaid but, never fear, they are to be paid from the “assets” contained therein. So, just to be clear, “The Federal Reserve Bank of New York today announced the termination of its assistance to American International Group, Inc. (AIG) and the full repayment of its loans to AIG as a result of the closing of the recapitalization that was announced on September 30, 2010. As of today, AIG will no longer have any outstanding obligations to the New York Fed,” means that the legal entity – AIG – isn’t on the hook but the behavior leading to the collapse of the financial system done by AIG – not to be mistaken as AIG – is still as virulent as ever. But, it’s nicely named.

Why would the Federal Reserve, the U.S. Treasury, and AIG executives willfully mislead the public with Friday’s announcement? Carefully couched in legally defensible technicalities – it is, after all, AIG that they exculpated – the announcement is a critical requirement of a system that MUST grow at all costs. For a government that lied about everything from the wars on communism to drugs to terrorism, this week’s announcement must be child’s play. Faced with the political necessity to further extend our debt limit beyond the staggering $14 trillion, we the People must be misled to endorse the illusion that someone knows what they’re doing.

But at the core of this system resides a more fundamental challenge. Passive debt – decried by sages and saints alike as usury – requires detachment. And this detachment must be sociopathic – and, yes, I mean behavior that lacks a sense of moral responsibility or social conscience. To hold the assumption that any human endeavor – be it farming, mining, manufacturing or trading – will always grow at a rate that sustains uncorrelated interest imposed by debt can only be animated with antisocial impulses. If one were to actually understand both the commercial endeavor and its actors, one would encounter an attachment to humanity which must be avoided. If one were to actually enter into a deep understanding of the commercial or property pursuit under consideration, one may elect not to enable it. If one were to understand the dynamics of an endeavor and see that the underlying cash-flows or market dynamics are episodic, one would need to require returns that mirrored cash-flow reality rather than perpetually compounding returns. In the name of capital efficiency, we’ve agreed to participate in a system which cannot think, innovate, or act in any manner other than its own preservation. And, in our current model, we insure complicity by making sure that our very currency is the foundation for all the madness built thereon.

So we’re at the point in the system where the only beneficiary (and as a result, the only interest that is relevant in assessing the health or injury of the economy) can be the Fed and the Treasury and their benefactors. The idea that there is any semblance of a public interest is unthinkable in a world where the People finance the madness of the Establishment. In short, it is as unrealistic to animate energy seeking logic or justice from schemes of sociopaths as it is to expect different behavior from the actors themselves. And as long as we the People are complicit in our acquiescence to the madness, we have no standing to seek redress or accountability.

Or, we could take a different path. I fondly recall a lecture hosted by my father where a really smart astrophysicist was lecturing about the expansion of the universe and was trying to wrap the audiences’ mind around the notion of the finitude of the universe. “Space,” he said, “while thought to be infinite and infinitely expanding, has limits.” After an hour of physics and cosmology that would curl the toes of Mayan and Incan astronomers, he ended with a question and answer session. A short way into the Q&A, my wife, Colleen, mused, “Well, space may be finite but, since it’s expanding INTO something, ROOM must be infinite because it has to have a place to go.” Her logic was unassailable. There are, in all likelihood, things that are without boundary. However, when it involves the more terrestrial affairs of value exchange, it’s high time we start grounding ourselves in the discipline of a commitment to Suitably Scaled Finitude. By this I mean that we must become active members of value exchanges, wealth and its stewardship. We need to know the scale, velocity and contour of value in its recognition and exchange and engage in finance within that knowledge. The “knowledge economy” is oxymoronic until we first commit to the exchange of Knowledge and then deploy the fullness of the same in economic exchange.

In this process, we need to see growth with more dimensionality than is currently contemplated. Growth may be linear and compounding. It may also be a phase within a necessary cycle of birth, growth, maturity, and re-birth. Great benefit may accrue from an understanding that natural cycles of abundant production include composting, decay and replenishment. Using the wisdom emerging from our colleagues studying biomimicry, we may find that the temporary, cyclic use and repurposing of materials or processes is actually more value accretive than our current linear waste production compulsions. In short, our financial systems based on passive detachment must be replaced with wisdom and kinetics that are suitable at scale. If we are to learn from the 50 year experiment in sociopathic, debt-based perpetual motion growth-at-all-costs that leads our leaders to lie, we must resolve to be more fully aware. We must begin exercising the discipline of living at a suitable scale in our own lives so that we can learn accountability in the broader human experience. Engage!

A Letter to Mr. Davis

Saturday, January 8, 2011 was a cold day in Charlottesville. As my wife and I went out to run a few errands, we turned off Fifth Street onto the entrance to Interstate 64 when I saw Mr. Davis standing next to two wheeled duffle bags on the shoulder of the on-ramp. We stopped to ask him where he was headed and he replied that he needed to get across the mountain to Interstate 81 where he could meet up with truckers headed towards Nashville, Tennessee where he would look for work in warehouses. I gave him enough bus fare to head south and went into town. Two hours later, returning home, Mr. Davis was still standing beside the road and, when I stopped to check in on him, he was visibly, extremely cold. A Greyhound bus had just passed by and he hadn’t been able to get onboard. So, duffels loaded into the trunk of my car, Mr. Davis came home long enough to warm up, get some potato soup and grilled cheese sandwiches. As my brother and I prepared to drive him to Interstate 81, he gratefully took a winter coat, some Wolverine work-boots (my favorites), and a pair of gloves in case his ride didn’t come along. As the sun was setting, we set him on his way south. I don’t know if he made it but this letter holds my thoughts…

Dear Mr. Davis,

Thank you for spending part of your day with us yesterday. For the few hours you stayed as a guest in our home, you gave me an opportunity to reflect on why I’ve been working so hard for so long to find a new way for people to engage in an economy that leaves so many like you so far behind.

Insights about the migration of warehouse and trucking work are hard to come by if you don’t have your perspective as a day laborer who has no regular job, no health benefits, and no place to call home. I haven’t considered how hard it would be to find work if you didn’t have a drivers license, a credit card or an address. I didn’t take the time to think about the fact that industrial parks and warehouses being on the outskirts of town mean that people like you, who want to work, can’t do so because there’s no transportation to get to and from work. With the gentrification of warehouses in downtown areas, I can’t say I gave much thought to the degree to which the industrial park has actually compounded poverty by making jobs less accessible.

I haven’t had a guest sit at my table for a long time wearing his sunglasses throughout the meal. But I couldn’t help but notice the fact that your left eye looked like it had been injured. I suspect that the constant exposure to the cold at this time of year makes that all the more difficult to manage. Regardless of whether Congress mandates universal health care or repeals it, I suspect that you’re one of our fellow Americans who simply won’t have much access when you need it. I wonder how many thousand people drove by you on their way down the highway – people who think that big government is a burden – without stopping to see if you needed anything. If our paths cross again, I hope that I can provide enough sanctuary that you can actually feel comfortable enough to remove the glasses so that you and I can actually look into each others’ eyes.

This weekend, Secretary of Labor Hilda L. Solis and President Obama told the country that the economy was looking better because the private sector added over 103,000 jobs in December. They glossed over the part about the fact that, during the same reporting period, the Bureau of Labor Statistics reported that November saw 1,586 mass layoff actions impacting 152,816 workers. And, they seemed to ignore the fact that hourly labor compensation fell while hours worked increased. They also seem to have ignored the fact that their enthusiasm over unemployment rates is still based on the inhumane, sociopathic belief that only those qualifying for unemployment benefits should be counted. With over 16% of the population without work – the real number of people without jobs – I wonder if anyone in Washington (or Charlottesville) has listened to you. Given how insightful your conversation was at our table, it seems that you would have a ton of valuable inputs in describing what the national economic and employment picture really looks like. It is unthinkable that “We the People” officially don’t think you exist and that we have a system in which you don’t – and can’t – count.

While I hope your travels lead you to the destination you desire, I hope that when you get your feet on the ground, you reflect, for a moment, on your sojourn here in Charlottesville. I hope you pursue your passions to write music and produce albums. I hope that you find a nice piece of real estate to start putting some roots down. Most of all, Mr. Davis, I hope that you have the opportunity, one day, to see a man by the side of the road and invite him to lunch. And when that happens, I trust that he has size 10 and a half feet so that you can pass along the best steel toed boots I ever had.

Godspeed, Mr. Davis… and, keep the collar up on that jacket and know that you’re in my thoughts.

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MDCLXXXVII – MMXI – A Life Unconsidered

Would Moriarty be animated without Sherlock Holmes? Do “good” and “evil” merely serve the Tao in a perpetually fatalistic Newtonian harmonic in which “equal” and “opposite” are Laws of Nature? When I work to illuminate pathologic economic and social injustice in Mongolia, Papua New Guinea, and Sierra Leone perpetrated for the benefit of investment bankers and pension funds in the U.S. and Europe, do I merely spread the carnage to the next venue where political dysfunction will be co-opted yet again?

The turn of the year has always provided the context for an inventory the past year’s endeavors and an intention-setting for the year ahead. For the majority of 2010, I was profoundly perplexed by the schizophrenic behaviors manifesting in common and extraordinary situations. Where were the No Big Government Tea Party lunatics applauding New York Mayor Michael Bloomberg’s pronouncement that “snow happens” when the streets of New York remained impassable? After all, we don’t need anachronistic snowplows 360 days of the year! Where were the picket lines from Labor-backed liberals when the U.S. government (under a Democratic President) became “The Man” by owning the automotive industry (with the notable exception of Ford)? How do you even have a labor movement when you are “The Man”? Hypocrisy fully metastasized throughout the world as the cancer of ignorance was fed by modified corn starch-laden talking heads on what used to be called the media – now appropriately derided into “entertainment”.

In my reflection (inspired by BBC’s brilliant re-make of Sherlock – a modern rendition of Sir Arthur Conan Doyle’s master works co-created by Steven Moffat and Mark Gatiss) I found my thoughts coalescing around the work of one of modernity’s greatest influencers who few know and even fewer understand - Sir Karl Raimund Popper. This London School of Economics professor is credited with popularizing empirical falsification in 1934 with the publication of his book, Logik der Forschung in which he both defined scientific method of repudiation of the null hypothesis as well as his more philosophical critique of historical materialism. Few scientists today fully apprehend the ontological dependency their method has on the post-Marxist thinking of Popper who was knighted by Queen Elizabeth II in 1965. Popper’s later work on Absolute Tolerance earns him a role in my pantheon of celebrated philosophers (along with Cyrus the Great) but it’s his scientific method that drew my thoughts at the turning of the year.

In the 21st century, we’ve come to accept a simplistic dualistic world view. Things are “good” or “bad”. Countries are “willingly coalitioned” or are “harboring terrorists”. We want “no government spending” but insist on government bailouts, unemployment insurance and gargantuan defense and security employment. The tragedy of our dualism is the fact that we don’t consider its consequences at all. Popper, in his rejection of empiricism, was trying to distinguish what was or was not scientific. To be “scientific”, a thing had to be falsifiable. This means that there must be a method by which sufficient observation can be reproducibly made such that the disproving of a thing would be possible. Truth, was not established by empiricism or science but rather was approximated by conditions which appeared to correspond with an accumulated, experiential knowledge.

Which take me back to 1687 – the year that started this blog. I would argue that the humanity that stands on the precipice of 2011 is far more Newtonian – predisposed to Laws of Nature and dualism – than it is Popperian. The irony of this observation is that we’ve actually regressed in our capacity to think, engage, and transform to a period of time when we were still debating what calendar best measured the occurrence of Easter! Poppers 1936 publication of The Poverty of Historicism was dedicated “In memory of the countless men and women of all creeds or nations or races who fell victim to the fascist and communist belief in Inexorable Laws of Historical Destiny.” If he were writing today – rather than in the throes of the conflict riddled first third of the 20th century – he would add the modern victims of Reaganomic-inspired nationalists beside the fascists and communists. Why? Because the application of Historicism – popularized to refuel anti-Japanese and anti-Russian American nationalism in the early 1980s put us on the tracks that dead-ended in 2008 in the collapse of our Wal-Mart inspired consumerism at all costs.

Laws are the bureaucratic projections of consensual languor (and remember that one of the deadly sins is sloth, along with its cousins, avarice and greed). Newton’s Laws and Popper’s scientific method were ontological evolutionary steps in the march of the collective consciousness towards greater understanding of the world in which we live – not immutable Truth. Werner Heisenberg’s 1927 uncertainty principle – one of the boldest confrontations to reductionism – comes the closest to the recognition that it is matter and energy in dynamism, not in opposition, that best describes the essence of all. Should we wish to pursue a more enlivened engagement with our planet, a more rewarding relationship with our cohabitants on this Earth, and a more fruitful experience of individual actualization and awakening, we are well served to liberate ourselves from our unconsidered cognitive shackles.

Act in moral transparent resonance. You may not be “right” or “wrong” but you will be approachable and fit for engagement.

Speak in total candor. You may miscommunicate and even offend but your practice will refine both yourself and those with whom you interact.

Favor multi-sensory observation over acoustic listening (bring your holistic sensory capacity to every interaction). Most misunderstanding arises from a misapplied literalism without a sentient apprehension of intent.

Free from the tyranny of judgment and dualism, celebrate the joy of considered living in Absolute Tolerance.

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Calling All Wisemen

Gold, frankincense and myrrh… and a vulture in a pear tree.

Looking out the window at the 5 inches of fluffy snow hanging on lifeless tree limbs, I took the time to compare Treasury Secretary Tim Geithner’s testimony to Congress with the December 9, 2010 Federal Reserve Flow of Funds data which I’ve encouraged you all to read regularly. I guess I was looking forward to some glimmer of holiday cheer which would suggest that, at some point, now that the Treasury and the Fed are co-conspirators in their Ponzi scheme to undermine the US economy for the largest expropriation of sovereign wealth in modern history, they’d at least agree on each other’s chimera. Alas, I was disappointed. You see, if you’re printing money supported by uncollateralized debt purchases, it’s nice to know that you’re at least lying consistently. Wishful thinking!

In his report card of the TARP, TALF, HAMP, HOPE, 11 pipers piping, 10 lords a leaping, a bunch of damn birds swimming and pointlessly sitting in trees, and a red-nosed reindeer, the Grinchner decided to perjure himself before Congress. In keeping with the on-going desperation to manufacture the illusion of economic recovery to anesthetize the American consumer against confrontation with the reality that we’re now in a Depression, he painted a picture that has more hallucination than a fat, red-suited man dropping down nonexistent chimneys could ever muster aided by all the egg-nog in the world. And worst of all, the indicting data is published by the Federal Reserve and is in print for all to see.

Since the government intervention in 2008, the rate of access to credit available through mortgages worsened by 100% in 2010 (when compared to 2009); consumer credit continued to shrink an additional yearly rate of -2.9%; and, that great hallmark of “job creation fantasy” – corporate credit – barely nudged 5% growth. All the while, the Federal Government continued to borrow at an expanding rate of over 20% year-on-year growth. The cold facts are that the Federal Government’s programs have been less effective at rebuilding the economy than had they simply borrowed from the Gulf and Asian countries, handed out per capita distribution of cash, and switched the lights off in D.C. In fact, we’ve actually failed to return one quarter of the economic return that would be required simply to support our debt.

What I find most puzzling about all of this is that we sit idly by as the corporate borrowing – the only positive inflection in the on-going Depression period credit collapse – is being used, among other things, to pay DIVIDENDS to Microsoft shareholders. That’s right, it’s cheaper to pay Goldman bonuses and Microsoft dividends with subsidized DEBT than actually take cash out of international growth market investment funds. By the way, this is what I mean when I talk about the expropriation of sovereign wealth. Using nonsensical debt and currency policy, the government (courtesy of Secretary Grinchner and his elf Ben) has made it possible for subsidized debt to incentivize U.S. domiciled corporations to deploy their capital in the international markets while riding cheap debt to pay domestic shareholders and employees their dividends and bonuses. Bottom line… the system is working provided that you’re riding the dividend / bonus wave of subsidized incentives.

When we look back on 2010, one thing is certain. While pensions were hollowed out, entitlement programs were cannibalized for short-term liquidity, and EVERY national government guaranty program (aka “insurance” programs like PBGC and FDIC) were mismanaged into official insolvency, the alphabet soup of capital intervention has provided a few banking and corporate interests the opportunity to leverage the country’s credit future for their own immediate benefit. Conveniently, they’ve set up pathways for capital flow and hording far beyond the reach of an incompetent IRS and the theft of country is nearly complete.

And not surprisingly, their bets with your taxpayer-subsidized special drawing rights (because the dollar is even too risky for the World Bank now) are in markets like China, Brazil, Southeast and Central Asia. And just for fun, China has decided to plop a lump of coal in the Christmas stocking by decoupling the renminbi from the dollar 25 basis points more. Occidental economists should puzzle – going into the New Year – over the century-in-coming William Jennings Bryan populist revenge… yuan in Chinese means “lump of silver.” It looks like the “cross of gold” speech may, at long last, be vindicated!

All we really needed for Christmas this year was a little bit of Truth and Accountability. It looks like we’ll have to wait for next year to see if that’s possible. So, if you’re out there Wisemen, be warned… take a different way home. You’ll probably want to find a bunch of tax havens along the way because you’ll need to store your gold, frankincense and myrrh well out of reach of Americans who, when they wake up from their long winter’s nap and see that their country has been stolen, will be a bit more disgruntled than King Herod. Silent night… bah humbug!

Confutation of Atheism and Its Consequences

Sitting by the fire on this chilly Christmas week I am enticed by the beverage owing its legacy to none other than Sir Hans Sloane. Finding cocoa and water a “nauseating” mixture, it was Sir Sloane who, upon returning from Jamaica, found that adding milk and sweetener to cocoa made it a pleasant physic. Who knows, without his advancements, chocolate may have remained relegated to the tantric, spiritual elixir of the Mayans (hmmm, come to think of it, maybe I would have preferred that… but, alas, I digress)?

One week and 15 time zones ago, I encountered a more consequential legacy of Sir Han Sloane who, upon his death, bequeathed his cupboard of over 70,000 curiosities to the world (along with his estate’s demand of £20,000 from George II) serving as the basis for the founding of the British Museum. In his Last Will and Testament, Sir Sloane stated:

Whereas from my youth I have been a great observer and admirer of the wonderful power, wisdom and contrivance of the Almighty God, appearing in the works of his creation, and have gathered together many things in my own travels or voyages, or had them from others, especially my ever honoured late friend William Courten Esq who spent the greatest part of his life and estate in collecting such things, in and from most parts of the earth, which he left me at his death;… And whereas I have made great additions of late years as well to my books, both printed as manuscript, and to my collections of natural and artificial curiosities, precious stones, books of dryed samples of plants, miniatures, drawings, prints, medals, and the like, with some paintings concerning them ... Now desiring very much that these things tending many ways to the manifestation of the glory of God, the confutation of atheism and its consequences, the use and improvement of physic, and other arts and sciences, and benefit mankind, may remain together and not be separated where they may by the greatest confluence of people be of most use; And I do hereby declare that it is my desire and intention, that my said museum or collection be preserved and kept and that the same may be from time to time, visited and seen by all persons desirous of seeing and viewing the same, as well towards satisfying the desire of the curious, as for the improvement, knowledge and information of all persons.

During a conversation with the incoming director of the National Museum of Papua New Guinea, I was struck by the fact that, in Inverted Alchemy terms, the legacy of the archetypal museum actually serves as an interesting social metaphor for the economic system of scarcity management that has served humanity so inadequately. Setting aside the conceit expressed by this successor to Sir Isaac Newton as President of the Royal Society, I was struck by the essential elements of “The Museum” which reinforce the value memes intertwined in our economic system.

In a collection assembled, expropriated, and stolen from cultures and locations which celebrated animism, polytheism, astrological customs and cults, and all forms of social values, Sir Sloane saw his collection as a refutation to the very communities from which his collection came. Almighty God, it seems, saw fit to be reflected in the works of people who were unfit by virtue of their beliefs. However, the appropriation of the artifacts and totems of veneration – while a product of heathen practice – was suitable to glorify God provided that it was in the sterility of a curiosity collection safely ensconced in the stewardship and view of an Anglican audience. It is no surprise that our Keynesian economic view places no value on the “unimproved” “natural resource” in situ when the esteemed moral philosophy that stimulated industrial economics embraced the schizophrenia of the British Museum and its logical derivatives.

The Museum served another very important role in colonial societies which was evidenced in researching the deposition of cultural artifacts from Papua New Guinea and other heritage traditions around the world. The collection of biological and anthropological artifacts served as a metric of “improvement”. By enshrining a record of the conditions of social systems in the “pre-improved” state, one could graphically represent “progress”. Why is it, for example, that museums show clubs, swords, spears and arrows and conclude with guns? Never mind that the greatest (by cultural diversity and land mass) empires were assembled by archers on horse-back. No, the supremacy of guns is because they’re closest to “us” in time and, as such, represent the hubris of temporal relativism which sees progress as a linear, always improving state. As in our debt-based, perpetual growth, unsustainable monetary systems, we need our social archetypes to support the illusion that we’re ever growing and ever improving. We cannot conceive of the intellectual complexity which was required to, while riding a horse in full gallop, determine range, wind-speed and sighting sufficient to shoot an arrow and have it hit its mark at 150 meters. We cannot see that a Mongol warrior was intellectually and physically superior to a 21 year-old with a video screen and joystick controlling a lethal drone over Pakistan killing anyone in the neighborhood of a suspected terrorist. When you want to reinforce a consensus illusion, your children need to go on field trips to see that temporally “modern” is “better” and that’s a primary motivation explaining why museums have to display artifacts in order.

Value in the museum was defined by curiosity, rarity, and observer-based perception. Whether it was the cocoa from Jamaica, butterflies, plants, carvings, paintings or statues, value was imputed by the observer / collector giving no thought to community-defined relevance. The Spaniards were looking for gold in the Americas and ignored the astronomical knowledge which would have radically altered the efficiency of navigation, the understanding of time, and the wisdom of cosmology. Americans are hungry for oil and natural gas and cannot see the integrated value in ANWAR, Iraq, or Afghanistan. By assuming that value is only manifest in its explicit recognition by the foreign observer, massive values and wisdom are overlooked and lost. The British Museum and its spiritual off-spring are filled with the hubris which see novelty, curiosity, and scarcity as the defining value arbiters and, as a consequence, fail to apprehend the true values of the lands and people from which value is taken.


Rather than building monuments to scarcity – in the form of zoos and museums – so that we can wax nostalgic about the world that we’re erasing in the name of modernity, why don’t we stop the madness and figure out a way to celebrate abundance in situ? In efforts like the Heritable Innovation Trust, we’ve created a pathway to share in abundance that which communities and cultures wish to celebrate with the world. Efforts like this are essential not only to reshape our unconsidered cultural insensitivities and ignorance but they are the root of framing a new value system. One that is built on the recognition that unappreciated value in diverse communities may expand understanding of wealth and engagement may wind up being more productive in the long run. Goodness knows the model built under the patronage of George II hasn’t worked out so well. It’s high time that we understand that perpetual linear economic growth based on autocratic control of scarcity for the exclusive benefit of the few is as much an anachronism as Sir Sloane’s legacy. It’s time to evolve and confute ignorance.

Debtor in Possession… well, at least Possessed

Article One, Section 10. Constitution of the United States of America

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; Coin Money; emit Bills of Credit; make any Thing but gold and silver a Tender in Payment of Debts; Pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligations of Contracts, or grant any Title of Nobility.

To call it a Constitutional Crisis would be wrong in two ways. First, our national constitutional illiteracy is so great that we wouldn’t know most of it if it bit us in the face. Second, for the past few Presidential and Congressional cycles, the breach of the “protect and defend” oath has been more common than the actual enforcement of the Constitution and, as such, it’s melodramatic to imply that Americans actually still care about the Constitution, much less are animated to the level befitting the animation of Crisis. That said, I thought I would humor you with an interesting puzzle which, like other inconveniences where things like the Constitution get in the way, will be surreptitiously cloaked in some hyperbolic rhetoric and ignored by the governed. Bear with me because each of the ingredients below back a cake but they appear to be uncorrelated when you see them on the counter….

As a nation, we’re bankrupt. The St. Louis Federal Reserve Review (July/August 2006) published a wonderful article by Laurence J. Kotlikoff entitled, “Is the United States Bankrupt?” in which he argued, before the 2008 melt-down, that the question is not entirely answerable because for countries, many of the rules that apply to people or corporations don’t apply. Countries can go broke – as many have – but, with creative currency manipulation and foreign complicity, they can enjoy a non-dead zombie status for a dreadfully long time. In his conclusions, he suggested three steps to solve the problem that was looming in 2006: 1) impose a retail sales tax of up to 30%; 2) establish a personalized Social Security scheme; and, 3) establish a universal health care system. Without these radical steps – and with the economy still reportedly healthy when written – we were going to be in tough shape.

We’re in worse shape than we were in 2006 and Kotlikoff’s critique reads like an epitaph on an already mouldering marble stone in a forgotten graveyard. However, take heart! This President and Congress have demonstrated an equal unwillingness to confront the politically undesirables and are once again wrangling over how to demonstrate the fiscal irresponsibility which serves as the mainstay to satiate the lunatic electorate and special interests which seem to forget that an illiquid dollar, regardless of how many you horde in the current madness is worthless.

Before I wander too far into this farce, it’s worth pointing out a rather interesting and largely unreported piece of data (unless you live in Detroit where the data affects the regional GDP). The Pension Benefit Guaranty Corporation (“PBGC”) – ah, yes, that venerable institution that Inverted Alchemists have known more about than any other segment of society – reported its deepening deficit in which its known liabilities outstrip its capacity to meet its obligations (and that’s before the municipal pensions crater at year’s end). However, in the fine print of the PBGC report on their illiquidity, there was an alarming – albeit, innocuously presented – piece of data. You see, insurance of any kind has two ways of making money: premiums and investment income. And the PBGC contracts “institutional investors” to manage its investments. Well, premiums were insufficient to meet obligations and investment income in 2010 was down. More fascinating still is the fact that the U.S. Government’s investment strategy is underweight in equities (almost 1/3 equities and 2/3 in currency and monetary instruments). In the face of recommendations like the one made by Kotlikoff for Private Social Security, one must puzzle over the fact that the government’s own money managers don’t believe in the equity markets despite the public statements lauding the recovery of Wall Street. For all of our wishful thinking about being on the road to recovery and with over 2 million more Americans with expired unemployment benefits, we’ve got an interesting puzzle on the horizon.

It looks like this. When municipalities simultaneously face growing demands for services based on the growing unemployed masses at the same time that they themselves are underwater with respect to, or have leveraged their own pension liabilities, they will be unable to respond with adequate revenue. As a result, as is already happening across the country, municipalities are teetering on bankruptcy (which, by the way, they can declare). This will have a double negative impact. Obviously the liability will seek to be absorbed in PBGC or related instruments thereby increasing the notional benefits guaranteed. However, at the very moment these new obligations hit pension insurers, the bond, currency and fixed income defaulted assets will be what is supposed to backstop the benefit. Oops, the cupboard is bare! States, most of whom are in abysmal fiscal condition themselves, will be asked to step in but have no capacity to do so. And then….

There are several authors who are talking about the bankruptcy of States like Illinois, California and others. The American Catholic (November 30, 2010) published an article entitled “Bankruptcy Coming Soon to a State Near You,” in which they discussed the systemic fiscal challenges looming on the horizon for many jurisdictions. In the discussion of State bankruptcy, I find an interesting Constitutional question… ah, yes, I promised I would come back! What is the Constitutional capacity of Representatives and Senators from a State which bankrupts? Precisely what role does such a State’s impairment play on the Constitutional duties of Congressional members from that State? How do you objectively steward national assets (or in our case, liabilities and debt) and still defend your home turf? On the one hand, faux federalists of the Tea Party ilk would love to see “less big government intervention” and would love to jump on Fox News to advocate for callous neglect (provided it wasn’t THEIR State). Interventionalists would advocate for fresh national debt to come to the aid of the failing States (Can anyone say “stimulus for shovel ready projects”?). This acrimonious banter will ignore the Constitutional question. Can a Representative or Senator be the de facto Bankruptcy Trustee – advocating for the interests of the creditors – while at the same time fulfilling their elected role as advocate for the State that sent them to Congress? The answer, in case you’re wondering, is NO!

Remember how quickly diehard Conservos decided that taking stimulus was justified – over their boisterous rhetoric of the specter of socialism – because “everybody else was doing it.” You see, the euphoric hypoxia induced by the cult of elected power when positions are purchased – not earned – makes fiscal accountability an endangered species and directly starves the moral center in the cerebral cortex of much needed fortitude. Principles are, regrettably, viewed as “best efforts” ideals, not as binding calibrators of accountability. And we really didn’t have a Constitution framed in which the fiscal collapse of the State would be contemplated. We should have. Silly me, I wax nostalgic when I read that our Constitutional fathers wrote that appropriations for War should not exceed two years (Article One, Section 8). And of course, the part about the enumeration of our population in which certain classes of humans were to be counted as 3/5 human.

However, I think that our bigoted forefathers might have buried a clue in the 3/5 human National Treasure that, with a little lemon juice on the disappearing Masonic ink on parchment, some magical spectacles from Ben Franklin’s top left desk drawer, and a black light, might just form the germ of a good idea. When States become insolvent (as the law is iffy at best on whether they can actually be bankrupt), how about we reduce the Congressional voting participation by the proportion of the State fiscal burden places on the national government? How about making 3/5 Representatives and Senators – including having the proportion be reflected in party majority status? After all, 3/5 was structured for indentured sub-humanity and a member of Congress from a dead-beat State is representationally indentured (at least morally indistinguishable from a pithed toad). When a State craters, let’s have some real teeth in it. Why? Am I just some heartless, ill-tempered patriot? Absolutely not. I think that if Congress knew that fiscal irresponsibility at the National level and State level had DIRECT consequence on the wielding of power, we could turn the tables on making some of the hard decisions.

Having a Congress and White House which both refuse to act with or model accountability requires a Constitutional response. The reference at the beginning of this blog reminds us that the State cannot impair Contracts and, with their conflicted fiscal role in our nation, bankruptcy would do that. As the Constitution is silent on State bankruptcies, the least we can do is extrapolate in the pursuit of Happiness (or at least, amusement).

In the coming months, the PBGC will be a canary in the coal mine. The bird’s already got emphysema, is taped to the perch and has a molting wing. However, it will become a Monty Python stage prop pretty soon. Watch how quickly Michigan, California, New Jersey, New York and Illinois members line up to appropriate money into the PBGC crater. Watch to see how they respond in January to the new wave of pension liabilities that are forthcoming. Watch how they finesse the municipal pensions which are collapsing cloaking their advocacy in sweeping generalizations rather than broadcasting their self-interest. Carefully examine the asset allocation for the PBGC (and FDIC for that matter) investment management and watch how they dance around the need to do the right thing while falling in line with the lemming-like insanity that dupes a gullible public into believing that the markets are surging. What you’re observing is a fate of our nation that our founders never imagined. And in this case, the best you can say when you’re sitting in your cave having bludgeoned dinner with a club fashioned from the bumper of your minivan, was that, courtesy of this blog, you saw it coming!

Beyond Freedom to Liberty, Beyond Revolution to Transformation

The following is the transcript for the speech to be delivered December 6, 2010 for the EBI Freedom Day Dinner for the Government, Civil Society and Honored Guests of Mongolia's 21st Anniversary of Freedom from Russian control.

Freedom Day Speech
By
Dr. David E. Martin, Chairman, M•CAM

In Honor of the 21st Anniversary of the Democratic Union of Mongolia


Honorable Citizens of Mongolia,

It is my distinguished privilege to stand before you this evening as we celebrate the upcoming 21st Anniversary of the organization of the Mongolian Democratic Union. In the short period of time during which my relationships in Mongolia have been deepening, I count it a particular honor to engage as dear friends many of those who resolved, in the Winter of 1989, to choose peaceful engagement to transform this great country. In a world where conflict and injustice is so frequently spotlighted in media and social metaphors, the courage of those who, in modesty and in anonymity, chose to put country before personal gain and put the cause of the citizen above the cause of the State demands our appreciation and evokes our deepest respect. To each of you gathered here tonight, and to all those who read and hear these words, let me promise you that your contribution to humanity’s brighter models of transformation will live in honor.

As I reflect on my interactions with public and private sector interests here in Mongolia, I see an interesting mix of challenges and opportunities confronting this young incarnation of an 800 year old nation. Eight centuries ago, a vision of a unified network of tribes and trade routes led Mongolia to determine a geopolitical and economic model which defined the economic, social, cultural, religious, and military principles for people ranging from the Pacific Ocean to the East to the Mediterranean and North Sea to the West. During periods of European repression of knowledge and inquiry at the hands of power intoxicated clerics, the Mongolian impulse to act expansively on the global stage shaped human history in ways that persist to this day.

It is, therefore, ironic, that on this Freedom Day we would consider the pursuit of Mongolia’s destiny with the words “Freedom”, “Democracy”, and “Revolution”. And I would like us to consider, with great precision, the assumptions embedded in these much used, albeit much misunderstood terms to see if they are the best descriptors of what we gather to celebrate this evening.

Freedom, at its core, represents the principle of being released from restraint. It is, in fact, the absence of a restrictive force or influence. While many celebrate Freedom as an aspiration, this tendency is filled with unintended consequences. In 1989, and for the years leading up to the march to autonomy, it was clear that release of restraints and restrictions on the thoughts, words, actions, and destiny of the citizens of this country was a value worth pursuing. In short, it was very clear in the minds of many that an undesirable State needed to be transformed by rejecting certain impositions and embracing a different path. And in the moment we celebrate this evening, Freedom was a short-term, valuable goal. However, in 2010, the persistence of the messages of “Freedom” may fuel political and social interactions that are destructive to the social fabric of the country. In a multi-party system, dialogue, honest disagreement, and transparent social experimentation for the common good are of far greater value than the tyranny of victory by viewing fellow citizens as opponents. In fact, what Mongolia – and for that matter, the U.S. and many other failing democracies – need to reconsider is whether the impulse to see public disagreement as restrictive and restraint is in fact in direct opposition to the very value we say we hold. By characterizing public service in the paradigm of Freedom, we constantly see struggle and victory as tactical goals and achievements and we quite often lose sight of a common, shared destiny achieved through a multitude of optional paths.

So this evening, I would propose that, instead of Freedom, we encourage the value of Liberty. Where freedom is a response to an imposed force, Liberty is the capacity to fully engage as citizens of a common future. Liberty is both an ideal and a right. However, implicit in the construct of Liberty are the notions of Tolerance (both for self and others) and Citizenship (seeing a communal good as a unifying principle).

In what is thought to be the first Declaration of Human Rights, Cyrus the Great of Persia declared:
“I announce that I will respect the traditions, customs and religions of the nations of my empire and never let any of my governors and subordinates look down on or insult them. I will impose my monarchy on no nation. Each is free to accept it, and if any one of them rejects it, I resolve never to war on them. I never let anyone oppress any others, and if it occurs, I will take his or her right back and penalize the oppressor. I will never let anyone take possession of movable and landed properties of the others by force or without compensation.”
It is evident that this remarkable vision understood that tyranny of conflict in which one is the victor and the other the loser is destructive to the common good. Liberty of culture, religion, and even loyalty were all seen as fundamentally human.

Which brings me to “Democracy”. The Greek ideal, clearly defined by Plato as the “rule by the governed” is as elusive today as it was 2600 years ago. And, in 2600 years, the same challenges and threats to manifesting the ideal exist. In its present state, democracy’s greatest threat comes from the commercialization of the public office. In countries calling themselves democracies, the financial corruption of this social institution has reached epidemic levels. In the recent elections in the U.S., over half the GDP of Mongolia was spent in eight months on trying to purchase influence in the U.S. Congress. The fact that people vote in elections is somehow confused with the ideal of democracy. To be clear, voting is NOT democracy – it’s a procedural and parliamentary decision methodology. Democracy requires those who are citizens selecting among their fellow citizens those who are worthy of leadership. Long ago, the United States abandoned the notion of public service in high office. The business of government begins, far too often, at the compromise of pure intention for the expediency of power or financial gain. And to be clear, without a conscious decision to take another path, the future for Mongolia could be very compromised as the world desperately seeks to influence those who will provide concessions to the expropriation of Mongolian resources for the benefit of special interests and foreign investors. If elections are funded or influenced by any foreign interest, they are NOT democracy. In fact, the functional corporate-led coup d'état which led the financial markets and industrialists to rule the U.S. and the U.K. from the 19th century to present is a risk facing Mongolia today. If Democracy is to be manifest in its true form in Mongolia, this young nation must clearly set down mechanisms to insure that the people’s voice – not the special moneyed interests – are clearly and most powerfully heard.

Which brings us to my final theme. In the fashion of other founding impulses, there is a predisposition to see transformation of social systems as Revolution. There is a certain pride associated with forging an identity that is galvanized around the passion of Revolt. Out with Oppressors and Power to the People seems like such a wonderful, populist ideal. However, let us be quite clear. In the two decades since Mongolia began its current history, what has been the case is that the colonial powers of industry and oppression have been traded for colonial powers of the global capital markets. When the Government of Mongolia purchases goods and services from China, Korea, Russia, Taiwan, the US and EU, this government does not use economic development tools like trade credits, joint venture manufacturing agreements and technology transfer to build its economy at scale. When local natural resources – metals and energy – are planned for development, the country becomes indebted to its own resource use. Rather than using tools of true empowerment and development for the social good, Mongolia has traded one form of oppressor for another in many instances. This is not revolution, independence or sovereignty. Rather it is the persistence of seeing outsiders as those who wield power over the destiny of the citizens of Mongolia.

Tonight, we can do better. In a few short months, we’ve established many partnerships with a singular focus to deal with this challenge. At the heart of the transformative challenge is the greatest challenge facing Mongolia – Information Asymmetry. The Government of Mongolia has not made bad choices – they’ve not been shown real choices. The People of Mongolia have not selected exploitative models of global engagement – they’ve been asked to accept what’s been offered. It is the role, not only of the Citizens of Mongolia but on the Citizens of the Global Community to realize that equal access to information is the most important variable in the transformation of this great nation. If the herder in the South Gobi gets information about water resources from a company who benefits from the disproportionate use of water, it’s not acceptable. If a city official in Ulaanbaatar is told how to control air quality by those who control fossil fuel interests, it’s not likely to be objective. In a world where communication and information seems to be infinite, we lack here and around the world, the ability to ask the question that we didn’t know to ask. We will never find that for which we never knew to look.

So on this Freedom Day night, I encourage you to reclaim the passion that many of you shared in the cold December evenings of 1989. Realize that, on this night, we celebrate the peaceful launch of a great social experiment in one of the most wealthy countries on earth. Wealth measured in metals, fossil fuels, ecosystem of water, sun, and wind exposure, culture, heritage is in abundance here. As such, each of you, together with me and those like me who seek to build a more perfect union, must stand together. As citizens, we must extol the virtue of Liberty. As responsible stewards of a nation with resource and cultural wealth, we must insure that leadership is not turned into a commodity to be bought by the highest bidder. And through the culture of honored citizenship, the transformation born in Mongolia may once again serve as a beacon for a world that needs the inspiration of a country which honors the ideals it promotes. To that end, you have my pledge and my deepest gratitude and respect.